In the interest of our children: banks and the little people”. The Fiji Times,26 February 1998
In the interest of our children: selfish banks
The Fiji Times, 26 February 1998
A few months ago, the sparks were flying over the high interest rates that the banks were charging on their loans, and the low interest rates they were paying on deposits.
The banks are quiet. The Reserve Bank is quiet. The government is quiet. With some minor concessions by the banks, the battles have gone away for the moment. Is the deposit rate battle lost?
Miserable rates paid by banks
Despite their record profits, the banks have completely ignored public demands that higher deposit rates be paid on savings and time deposits.
Indeed, on many deposits, some pay no interest at all; some will charge our children if they make more than two withdrawals a month; some will charge $2 a month if the balance drops below $50.
And some will even charge us if we are generous enough to leave our money undisturbed with the banks and make no further withdrawals or deposits.
The banks are now about to lay off more staff, and thereby reduce even further their service to the public.
Is this fair and sensible, looking to the future?
And what lessons are we giving to our children and the poor, ripped off by the banks?
Our banking lesson to the children?
We all preach to the children, don’t we, on the interest rate concept? Economists, university lecturers, secondary and primary school teachers, and parents – we all get in on the act, as follows:
The Bankers’ Sermon to us
“Dear children, do not leave your money under the mattress, or in a tin buried in the garden.
The paper notes might rot, or the tin of money may be stolen. And the value of your money will keep reducing, as price inflation eats away what it can buy.
So put your money in the Nice Friendly Bank, which will pay you interest and make your money grow.
And you will also help the country to grow, because your bank will lend the money to those who need it.
Of course, banks will incur costs in borrowing from you and lending to others.
But don’t worry, these costs will be paid from the difference in interest they pay you (the depositor) and the interest rate they charge you (the borrower).
And of course, they are entitled to some profit in the process”.
What a lovely lesson. So reasonable, isn’t it?
But wait, the Big Banks have rewritten the lesson.
Zero interest rates?
The banks have unilaterally decided that they will not pay a single cent in interest to savings bank accounts where the balance is below certain minimum amounts.
Bank of Baroda has a minimum balance of $50, while NBF has $25. But for ANZ, one of our two local giants, the minimum balance is $250. And for the other two giants, Westpac and Bank of Hawaii, the minimum is $200.
Sorry children, you won’t get a single cent in interest unless your savings goes above these minimum amounts.
How many children save $250?
Can you imagine a garment worker or cane cutter, or subsistence farmer, earning about $40 per week, with four children.
After payments towards a low cost home, the food bill, the school fees, and perhaps a few “luxuries” (like what?) the family might be able to put about $1 per week in each child’s savings account.
At the end of the year, each child will have $52.
It will take four to five years, before that child’s balance reaches $250.
That is, if the parents have not taken some money out for emergencies that always crop up: a reguregu, a solevu, a sickness in the family.
For most low income families, the child’s savings may not reach $250 after even ten years. In that time, their deposits with the fat-cat banks earn no interest at all.
Even worse, the deathly hand of inflation keeps eroding the real value of the savings deposit. By the end of ten years, the children’s savings may have lost a third to a half of their real value, depending on how high inflation is.
And with the recent devaluation, we can expect the rate of inflation to increase, eroding our savings even more.
While the banks keep making money on the deposits.
How much is at stake?
How much are the deposits in total, on which no interest is paid?
There are no figures available. But imagine 300,000 children and poor people, saving just $200 each. This amounts to $60 million of deposits in total.
If the banks lend this sum out at 10%, they would earn a total of $6 millions from just these deposits alone.
A 3% interest paid on these deposits would amount to a mere $2 millions- a pittance to these fat-cat banks.
In contrast there are about $350 million in savings deposits in the banking system, on which the banks easily earn some $35 million in interest income. While they pay out only $10 million in interest to depositors.
The margins on savings deposits are probably more than enough to pay for all the personnel costs involved in serving the needs of the savings depositors.
Keep in mind that their net interest income is actually closer to $100 million per year.
And all the commercial banks have made record profits in the last five years.
Remember the tin-can piggy banks?
Of course, the banks may be expected to answer that they are making some losses on their savings accounts for children.
But why should every aspect of their operation be profitable, especially those which must grow in future?
Don’t we adults remember when the commercial banks even used to send bank officers to schools?
Giving out free colourful tin cans which were to be taken home and brought back every month, filled with coins.
While we kids saw our bank books being filled out, balances added up, growing each week.
And how can we forget how the interest rates were explained and calculated, principal and interest added up, with wide-eyed children marvelling at the growing balances.
Banks servingFiji? Huh?
Of course, we understand that even then banks may have faced costs that were not covered by the interest income from the small deposits.
But as our banks frequently advertise, they are there to serve our societies, to help little children grow into responsible adults, and to grow with us.
And they know that eventually we will become well-off adults with plenty of money.
And we will do business with those nice friendly banks who so kindly taught us the banking habit by paying us interest on our deposits.
But the lesson has ended
Except that the banks now don’t want to pay interest rates on our children’s savings.
They even want to charge our children if they take out their money too often, to buy textbooks, story-books, or crayons.
They even apply charges if our children and poor people leave their money undisturbed with the banks for too long.
This is not on, is it? Parents? Teachers? Reserve Bank?
What are we going to do about it?